The first audit of a new state agency dedicated to cleaning up Puget Sound has found cost overruns, failure to follow the law in awarding no-bid contracts, and wrongful use of state money on gifts.

“Public funds set aside for the restoration of Puget Sound were improperly spent,” State Auditor Brian Sonntag’s office wrote.

The Puget Sound Partnership says it has taken steps to make sure future spending follows the law. But no one at the agency has faced discipline for wrongful use of money, a spokesman said.

Legislators created the partnership in 2007 with a mission to restore Puget Sound’s health by 2020. Most of its staff of 36, now split between Olympia and Seattle, is scheduled to move this summer into the new Center for Urban Waters building on Tacoma’s Thea Foss Waterway.

Among auditors’ findings:

In an apparent attempt to circumvent competitive bidding requirements for contracts of $20,000 or more, the partnership sought to pay law firm K&L Gates $19,999. After additions to the contract and extra payments that exceeded that figure, the firm was paid $51,498.

The agency didn’t seek other suppliers when it spent $11,897 on monogrammed jackets and fleece vests for its staff and others, including federal employees and state legislators. State law allows recognition awards only for state employees.

In another set of recognition awards, contractors, representatives of the Canadian government and Gov. Chris Gregoire received mahogany gift boxes containing bottles of sparkling apple cider. The 20 personalized, engraved boxes cost $687.

A purchase of 5,000 tubes of lip balm for promotional giveaways, at a cost of $3,650, also lacked a competitive process. A third of the lip balm remains in the state’s possession.

The agency skipped the normal processes for buying computer equipment and spent $42,000 on Apple computer products, which aren’t compatible with state information systems.

‘THROES OF DEVELOPING’

Partnership officials attributed the questionable spending to start-up struggles at a new agency that was given a year and a half to write an agenda for the next decade of work protecting Puget Sound from pollution.

“We were caught up in the throes of developing the Action Agenda, and there was a lot of pressure to get all that work done,” spokesman Frank Mendizabal said. He said no one was fired over the problems.

Turnover at the agency is unrelated to the spending questions, he said. At least 15 employees listed in the partnership’s memoranda or website in 2008 are no longer with the agency.

Executive Director David Dicks was traveling Thursday and not available for an interview, Mendizabal said. Gregoire appointed Dicks, the son of U.S. Rep. Norm Dicks, D-Belfair, as the agency’s original leader.

FOUNDATION CREATED

Legislators required the partnership to set up a foundation that would raise private money to supplement its $16.1 million budget.

To create the foundation, it turned to K&L Gates, whose two main lawyers on the project billed $478 and $314 per hour.

It’s unusual for agencies to tap outside law firms for help instead of lawyers in the state attorney general’s office, but officials said the firm’s expertise made it the natural choice. A lawyer at the firm had helped write the legislation that called for the nonprofit foundation.

The agency said it needed the work done quickly by experts.

But the contract deadline was extended twice, and by June 2009, after the partnership had created the foundation on paper and given it $167,000, the foundation still had not done any fundraising. It did collect corporate donations later that year, but still has no staff, Mendizabal said.

The money paid to the foundation came with no clear public benefit, auditors determined. But the partnership said the $19,960 spent on a documentary helped educate viewers of public television about threats to Puget Sound, and an additional $70,000 for a program that informed journalists led to more than 19 news stories highlighting the sound’s plight.

NO FRAUD EVIDENCE

The auditor’s office made no recommendations for dealing with violations of the law. The agency has no enforcement powers. It can refer a fraud case to prosecutors or the attorney general, spokeswoman Mindy Chambers said, but it didn’t find evidence of fraud at the partnership.

Gregoire’s spokeswoman, Karina Shagren, said the governor hasn’t yet been able to read the audit. The governor’s staff doesn’t know, Shagren said, if Gregoire ever received her apple cider.